The federal government posted a surplus of $2.2 in December 2015, compared to a surplus of $2.4 billion in December 2014.  As a result, there was a surplus of $3.2 billion for the first nine months of 2015-16, compared to a deficit of $0.9 billion in the same period in 2014-15.

The Minister of Finance also released a revised forecast for 2015-16. He now expects a deficit of $2.3 billion for the year as a whole, an improvement of $700 million from that estimated in the November 2014 Update of Economic and Fiscal Projections. This improvement resulted largely from the elimination of the Contingency Reserve ($1.5 billion) and repayments by Pratt & Whitney Canada ($1 billion), partially offset by new policy initiatives.

Budgetary revenues in the revised forecast for 2015-16 were up $2.4 billion, primarily due to the elimination of the Contingency Reserve. Program expenses were revised up by $1.9 billion, reflecting the decision not to proceed with the former government’s planned modifications to federal employees’ sick leave benefits and higher other future employee benefits due to lower-than-expected interest rates.  Public debt charges were revised down by $200 million due to lower interest rates.

Over the first nine months of 2015-16, budgetary revenues were up 7.2% ($14.0 billion) over the same period in 2014-15.  The February 2016 Update, however, only forecasts an increase in budgetary revenues of 3.0% ($8.5 billion) for the year as a whole.  Year-to-date increases in all of the major revenue components equal or exceed what is forecast in the February 2016 Update. For example, corporate income tax revenues are up 17.7% ($4.3 billion) in the April to December 2015 period, compared to the same period last year. A decline of 1.4% ($0.5 billion) is now forecast for the year as a whole. 

The Department of Finance is being very cautious with respect to the final outcome for corporate income tax revenues.  Corporations are required to remit based on either their previous year’s tax liability or on an estimate of their current year’s tax liabilities. Final settlement payments are made sixty days after the end of their taxation year. For chartered banks, the settlement period is December. For all other large corporations, it is in the February/March period. Revenues for December were only marginally lower than those in 2014. Traditionally, about 30 per cent of corporate income tax revenues are received in the February/March period. Given the current weakness in corporate profits, revenues in the settlement periods could be significantly lower than that experienced last year.  However, even so, it seems unlikely that they would decline as much as is currently forecast.  Budgetary revenues could still be about $2 billion higher than currently forecast.

Program expenses are up 6.3%, ($11.0 billion) over the first nine months of 2015-16, compared to the same period in 2014-15.  For the year as a whole, the February 2016 Update forecast an increase of 5.3%, or $13.6 billion.  The current year-over-year changes for all major components of program expenses appear to be on track to the revised forecasts for these components in the February 2016 Update for the year as a whole.  However, a key unknown are the final accrual adjustments for direct program expenses.  These could have a significant impact on the final audited results, in either direction.  Final audited results for 2015-16 will be published in the fall.

Public debt charges are down by 5.3%, or $1.1 billion, in the first nine months of 2015-16 when compared to the same period in 2014-15, reflecting the impact of lower interest rates. For the year as a whole, the February 2016 Update forecast a decline of $0.9 billion. The final outcome could be up to $0.5 billion lower than currently forecast.

On balance, the final outcome should be better than currently forecast.  Depending on the final accrual adjustments, there is a possibility of a small surplus in 2015-16.